The three-year shareholder returns and company earnings persist lower as AutoCanada (TSE:ACQ) stock falls a further 18% in past week

It's not possible to invest over long periods without making some bad investments. But really bad investments should be rare. So spare a thought for the long term shareholders of AutoCanada Inc. (TSE:ACQ); the share price is down a whopping 72% in the last three years. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 42% in a year. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days.

Since AutoCanada has shed CA$74m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for AutoCanada

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

AutoCanada saw its EPS decline at a compound rate of 7.7% per year, over the last three years. This reduction in EPS is slower than the 34% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 8.62.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on AutoCanada's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 17% in the last year, AutoCanada shareholders lost 42%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 11% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand AutoCanada better, we need to consider many other factors. Take risks, for example - AutoCanada has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.